Asian institutions have parked US$350 million with U.S. money manager Vanguard Group since it set up a regional arm last year, signalling growing interest in index-linked investing rather than stock-picking funds, Vanguard said.

"We’ve got US$350 million in the last nine months or so, all into index strategies," Jon Robinson, managing director of the Singapore arm of Vanguard, the second-biggest U.S. mutual fund company, told Reuters on Thursday.

He said the inflows were mostly into Vanguard’s global and U.S. equity index products.

"Institutions in Asia are starting to realise that active management is an expensive way of buying index-like returns," Robinson added.

"We see Korea and Taiwan as being the most interesting markets for institutional mandates."

With index or "passive" strategies, managers just replicate the composition of indices in their investments, cutting down on risks and charging lower fees.

Managers’ losses in the bear market of the past few years have brought costs into focus and have increased the attraction of index investing and other asset classes, such as hedge funds that deliver absolute returns.

INCREMENTAL ALLOCATIONS
Vanguard, which manages about a third of its US$730 billion U.S. mutual fund assets using index strategies, said it has an average expense ratio of 0.25 percent compared with an average 1.38 percent that mutual funds charge.

State Street Global Advisors (SSgA), the investment arm of U.S.-based State Street Corp (STT.N: Quote, Profile, Research) , has seen its assets in Asia (ex-Japan) grow to about US$22 billion from about US$8.8 billion at the end of 2000.

"It wasn’t that long ago when the standard mandate in Asia was just another one of these balanced type traditional accounts," said Hon Cheung, managing director at the Singapore arm of SSgA.

"So it’s not entirely unexpected to see some incremental allocations to index-type strategies because what makes sense for a big U.S. or European institution also makes quite good sense for an Asian institution as well."

Cheung said U.S. pension plans now had about 40 to 45 percent of their assets in index strategies while Asian pensions had only about five percent in such strategies.

State Street has also launched exchange-traded funds, baskets of stocks that trade throughout the day and are designed to closely track the performance of a specific index or a basket of stocks, to a mixed reception in Taiwan, Korea, Hong Kong and Singapore.